IN THIS ISSUE
- Discussion and Analysis
- News from the Americas
- News from Asia and the Pacific
- News from Europe
- Global Regulators
- US Securities and Exchange Commission Developments
- US Commodity Futures Trading Commission Developments
- US Banking and Treasury Department Developments
- US Exchanges and Self-Regulatory Organizations
Discussion and Analysis
By the time you read this, the US Department of Labor is expected to have released new regulations that will impose fiduciary obligations on brokers who provide investment guidance with respect to retirement accounts. Currently, brokers are required only to recommend investments that are “suitable” for the particular client.
The shift is unlikely to have a material impact on investment management firms registered as investment advisers; those firms already are obligated to act in the best interests of their clients. However, the rule is expected to be burdensome for small, independent brokers who rely on commissions.
Proponents of the new rule argue that the uniform higher standard is necessary because retail clients do not understand the distinction between financial professionals who are brokers engaged in selling securities versus those that are investment advisers providing financial advice for a fee.
Perhaps the inherent complexity of investments is to blame. Consumers presumably are capable of understanding when a realtor is trying to sell a piece of property rather than trying to find the property that may be in a house-hunter’s best interests.
The new rule may accelerate the trend toward the use of fee-based investment advisers rather than commission-based brokers. Brokers would need to justify that their investment recommendations were intended to be in a retirement client’s best interests and not for the purpose of increasing the brokers revenues. It also is possible that the rule change makes it more difficult for retail investors to access more sophisticated or “alternative” investment products or strategies, because financial professionals will be reluctant to make recommendations that with the benefit of hindsight might not be perceived as being in the client’s best interests.
Only time will tell which financial firms will benefit or suffer from the rule change. All brokers and advisers dealing with retirement account clients, however, should carefully assess how the rule will impact their operations, compliance programs, and marketing efforts.
News from the Americas
US indicts Iranian computer specialists for cyberattacks on banks and a dam. The New York Times reported that the Justice Department unsealed an indictment against seven Iranian computer specialists who regularly worked for the country’s Islamic Revolutionary Guards Corps. The indictment charged that the Iranian computer specialists were behind cyberattacks on dozens of American banks and that they attempted to take over the controls of a small dam in Rye, NY. In addition, the indictment cited attacks on the New York Stock Exchange and AT&T. (3/24/2016) The New York Times.
CSA gives advance notice of its upcoming publication on its work to enhance the obligations of advisers, dealers and representatives toward their clients. The CSA provided advance notice of the upcoming publication of CSA Consultation Paper 33-404 – Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients. The Consultation Paper, expected to be published toward the end of April 2016, will seek comment on proposed regulatory action aimed at strengthening the obligations that advisers, dealers and representatives owe to their clients. (3/31/2016) CSA Staff Notice 33-317.
Canadian securities regulators are seeking comment on proposed proxy voting protocols. The CSA published CSA Multilateral Staff Notice 54-304 Final Report on Review of the Proxy Voting Infrastructure and Request for Comments on Proposed Meeting Vote Reconciliation Protocols. Among other things, the Notice seeks comment on proposed protocols containing CSA staff expectations and guidance for improving the processes involved in the tabulation of proxy votes. (3/31/2016) CSA press release.
OSC issues request for comments on Statement of Priorities for financial year to end March 31, 2017. The OSC issued a request for comments on its draft Statement of Priorities. The OSC will consider the feedback and make necessary revisions prior to finalizing and publishing its 2016-2017 Statement of Priorities. Interested parties may make written submissions to the OSC by May 9, 2016. (3/10/2016) OSC request for comments.
US Securities and Exchange Commission Developments
Staff letter confirms that interests in ABLE accounts may be considered municipal securities.The SEC’s Office of Municipal Securities issued an interpretive letter on the applicability of Section 3(a)(29) of the Securities Exchange Act to interests in savings accounts established to support individuals with disabilities under the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014. The letter indicated that some interests in ABLE accounts may be “municipal securities” as defined in Section 3(a)(29) of the Securities Exchange Act and that a dealer participating in the sale of these interests would be participating in a “primary offering” and thus subject to the requirements of Rule 15c2-12. (3/31/2016) SEC staff letter.
Investment Management offers guidance to SBIC advisers on FAST Act registration exemptions. The SEC’s Division of Investment Management published new guidance for investment advisers to small business investment companies relating to Fixing America’s Surface Transportation Act amendments affecting registration requirements. In the guidance, the Division indicated that advisers may rely on the FAST Act amendments to the venture capital fund adviser exemption or the private fund adviser exemption, but must file the reports required of an exempt reporting adviser on Form ADV. (3/21/2016) IM Guidance Update 2016-03.
Corporation Finance publishes revised C&DI to address vague shareholder proposals. The SEC’s Division of Corporation Finance revised its Compliance and Disclosure Interpretation regarding requirements for the description of shareholder proposals on a registrant’s proxy card under Rule 14a-4(a)(3) to explain that proposals must clearly identify and describe the action on which shareholders will vote and to provide examples of descriptions that would be considered too vague. (3/22/2016) C&DI 301.01.
Exemptive Orders and No-Action Relief
ETF receives no-action relief from certain Investment Company Act ownership limits. The SEC’s Division of Investment Management granted SPDR S&P Dividend ETF’s request for no-action relief from enforcement action under sections 12(d)(2) and 12(d)(3) of the Investment Company Act if the fund invests such that it may own more than 10 percent of the total outstanding voting stock of an insurance company and/or purchase more than 5 percent of an outstanding class of equity securities of an issuer that, in its most recent fiscal year, derived more than 15 percent of its gross revenues from securities related activities. (3/28/2016) SEC no-action letter.
SEC exempts three more exchanges from data collection requirements of Tick Size Pilot Program. The SEC’s Division of Investment Management issued orders granting limited exemptions to Bats BYX Exchange, Bats EDGA Exchange, and Bats EDGX Exchange from compliance with certain data collection requirements contained in the Plan to Implement a Tick Size Pilot Program. (3/22/2016)
Selected Enforcement Actions
Investment adviser charged with front running transactions at the expense of clients. The SEC instituted contested administrative proceedings against an investment adviser for breaching his fiduciary duty by front running transactions that favored him and his largest investor at the expense of his other clients. The SEC alleged that the investment adviser to a private pooled investment fund invested the majority of fund’s assets in one security. After the share price of the security declined dramatically, the adviser sold all of his personal shares first and liquidated the fund’s shares the following day. By selling his personal shares first, the adviser benefitted from a higher share price as the share price of the security declined significantly during the liquidation of the fund’s shares. In addition, the adviser purchased shares of the security on behalf of the fund directly from his largest investor’s personal account at prices favorable to the investor. When the adviser liquidated the fund’s entire holdings in the security a few weeks later, the fund suffered losses because it sold the shares it had recently purchased from the investor at a substantially lower price than it originally paid. The SEC charged the adviser with violations of Section 10(b) of the Securities Exchange Act and Rules 10b-5(a) and (c) thereunder, Sections 206(1) and 206(2) of the Investment Advisers Act, and Section 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. (3/29/2016) In the Matter of Christopher M. Gibson, SEC Release No. 34-77466.
Speeches and Statements
White highlights concerns about unicorns and private company governance. Addressing the SEC-Rock Center for Corporate Governance’s Silicon Valley Initiative, SEC Chair Mary Jo White questioned the accuracy of unicorn valuations and called on private companies to take steps to safeguard the accuracy of their financial results and other disclosures. White also highlighted the need for growing start-ups to expand their governance structures and internal controls. (3/31/2016)White remarks.
White discusses fund directors’ role in addressing current and future risks. SEC Chair Mary Jo White, in a keynote address to the Mutual Fund Directors Forum 2016 Policy Conference, emphasized recent failures and technological glitches at mutual funds to illustrate her belief that directors must be proactive in determining whether their funds have adequately considered potential risks and how to prevent them. (3/29/2016) White remarks.
Chief Accountant discusses revenue recognition transition challenges and non-GAAP reporting concerns. SEC Chief Accountant James V. Schnurr delivered remarks to the 12th Annual Life Sciences Accounting and Reporting Congress in which he addressed the implementation of the new revenue recognition standard, concerns regarding non-GAAP reporting measures, and the importance of collaboration among preparers, auditors and management in effectively designing and implementing internal control over financial reporting. (3/22/2016) Schnurr remarks.
Investor Advisory Committee meeting. The SEC announced that the Dodd-Frank Investor Advisory Committee will hold a meeting on April 14, 2016. Written statements to the Committee are due on or before April 14, 2016. SEC Commission Notice 33-10058.
Investor Advocate urges MSRB to address potential for misleading disclosures in PMP guidance proposal. SEC Investor Advocate Rick Fleming submitted a letter commenting on the Municipal Securities Rulemaking Board’s proposed guidance for municipal securities dealers to determine the prevailing market price of a municipal security. Although he indicated his support for the proposal as an effort to increase price transparency, Fleming expressed concern regarding the potential for manipulation of the prevailing market price calculation for confirmation disclosure purposes. (3/31/2016) Investor Advocate letter.
Office of Minority and Women Inclusion submits annual report to Congress. The SEC’s Office of Minority and Women Inclusion submitted its annual report to Congress, which details the SEC’s efforts to enhance diversity in its workforce and promote the use of minority-owned and women-owned businesses in its business activities. (3/31/2016) Office of Minority and Women Inclusion report.
SEC issues order approving SIPC’s determination on maximum cash advance amount for SIPA liquidation claims. The SEC approved the Securities Investor Protection Corporation’s determination that the standard maximum cash advance amount available to satisfy customer claims in a Securities Investor Protection Act liquidation proceeding will remain at US$250,000, effective January 1, 2017, and for the following five-year period. (3/30/2016) SEC Commission Notice SIPA 176.
DERA staff report on custom axis tags in Form 10-K XBRL exhibits. Staff from the Office of Structured Disclosure in the SEC’s Division of Economic Risk and Analysis released a report that discourages issuers from using custom axis tags in the XBRL exhibits that accompany their annual reports, claiming it inhibits the comparison and analysis of financial statement data. The report notes that the use of custom axis tags is more prevalent among larger issuers. (3/29/2016) DERA staff report.
SEC reschedules open meeting. The SEC has changed the date of its open meeting from March 30, 2016, to April 13, 2016. The SEC previously announced that it will consider rules governing business conduct standards for security-based swap dealers and major security-based swap participants and the modernization of certain business and financial disclosure requirements under Regulation S-K at the meeting. (3/25/2016) SEC Sunshine Act Meeting Notice.
Draft EDGAR Filer Manual updates. The SEC released the Draft EDGAR Filer Manual (Volume II) EDGAR Filing (Version 36); the Draft EDGAR ABS XML Technical Specification (Version 1.2); the Draft EDGAR Form 17-H XML Technical Specification (Version 1); and the Draft EDGAR SBS Entity Forms XML Technical Specification (Version 1). If approved by the SEC, the changes in the drafts will be implemented on April 25, 2016. (3/25/2016)
US Commodity Futures Trading Commission Developments
Proposed guidance on the proper treatment of certain electric power and natural gas contracts is approved. The CFTC has approved proposed guidance that certain capacity contracts in electric power markets and certain natural gas contracts should not be considered “swaps” under the CEA because they are examples of customary commercial arrangements as described in the final rule defining the term “swap.” The public comment period on all aspects of this proposed guidance will close 30 days after publication in the Federal Register. (4/4/2016) CFTC press release.Massad statement.
Whistleblower award of over US$10 million is announced. The CFTC announced an award of over $10 million to a whistleblower who provided vital original information that led to a successfulCFTC enforcement action. The award is the largest made by the CFTC’s Whistleblower Program to date and the third award to a whistleblower who provided valuable information about CEA violations. (4/4/2016) CFTC press release.
CFTC approves final rule that provides an alternative to fingerprinting for foreign natural persons. The CFTC announced that it has approved a final rule adding an alternative for foreign natural persons to the requirement to provide fingerprints when applying for CFTC registration. The final rule will permit any such person’s registered firm to complete a criminal history background check instead of submitting fingerprints. The final rule is effective on May 2, 2016. (3/28/2016) CFTC press release.
US Banking and Treasury Department Developments
OCC gives viewpoint on responsible innovation and announces upcoming innovation forum.The OCC published Supporting Responsible Innovation in the Federal Banking System: An OCC Perspective, its viewpoint on responsible innovation in the federal banking system, and requested feedback on what else it could do to support innovation that better serves consumers, businesses and communities. Comments on the whitepaper should be sent to email@example.com by May 31, 2016. The OCC will host a forum on responsible innovation on June 23, 2016, at Constitution Center in Washington, DC, during which it will discuss comments received on the whitepaper and lead discussions regarding financial services innovation. (3/31/2016) OCC press release.
OCC reports that fourth quarter 2015 bank trading revenue declined to US$4.3 billion. The OCC announced that, according to a report, trading revenue of US commercial banks and savings associations dropped to US$4.3 billion in the fourth quarter of 2015, which is down from US$5.3 billion in the previous quarter. (3/30/2016) OCC press release.
OCC will be hosting Illinois risk governance and compliance workshops. The OCC has announced that it will be presenting two workshops in Springfield, Ill., at the Wyndham Springfield, May 3-4, for directors of national community banks and federal savings associations overseen by the OCC. The Risk Governance workshop on May 3rd will combine lectures, discussion and exercises to provide real-world information for directors to efficiently measure and manage risks. The workshop will also focus on the OCC’s approach to risk-based supervision and major risks in the financial industry. The Compliance Risk workshop on May 4th will combine lectures, discussion, and exercises on the critical elements of an effective compliance risk management program. The workshop will also focus on major compliance risks and critical regulations. Topics will include the Bank Secrecy Act, Community Reinvestment Act, and the Truth-in-Lending (TILA) and the Real Estate Settlement Procedures Act of 1974 (RESPA) Integrated Disclosures Rule (also known as TRID). (3/30/2016) OCC press release.
New Assistant Deputy Comptroller for national banks in the OCC’s Cincinnati field office is named. The OCC announced that Celia McGrath has been named Assistant Deputy Comptroller of its Cincinnati Field Office. Ms. McGrath will lead a team of examiners who supervise 30 community national banks and federal savings associations. (3/29/2016) OCC press release.
OCC will host Delaware workshop for bank directors. The OCC announced that it is hosting a “Building Blocks for Directors” workshop in Wilmington, Del., at the DoubleTree by Hilton Hotel Wilmington, May 2-4, for directors of national community banks and federal savings associations overseen by the OCC. The workshop will focus on directors’ duties and core responsibilities, discuss major laws and regulations, and increase familiarity with the examination process. (3/29/2016) OCC press release.
New Assistant Deputy Comptroller for national banks in the OCC’s Fort Worth field office is named. The OCC announced that it has named Hub Thompson as Assistant Deputy Comptroller of its Fort Worth Field Office. In this role, Mr. Thompson will lead a team of examiners who supervise 23 community national banks and federal savings associations. (3/28/2016) OCC press release.
Interim final rule on expanded examination cycle eligibility is published. The OCC, the Board of Governors of the Federal Reserve System, and the FDIC have published an interagency interim final rule amending the regulations governing eligibility for the 18-month on-site examination cycle, pursuant to the FAST Act. The rule makes qualifying 1- and 2-rated national banks, federal savings associations, and federal branches and agencies with less than US$1 billion in total assets eligible for an 18-month, instead of a 12-month, examination cycle. (3/24/2016) OCC bulletin.
FDIC issues special edition of corporate governance publication. The FDIC has issued a special edition of Supervisory Insights, “A Community Bank Director’s Guide to Corporate Governance: 21st Century Reflections on the FDIC Pocket Guide for Directors,” which reviews the Pocket Guide and integrates more recent guidance and technical resources to help board members successfully fulfill their role and duties. (4/5/2016) FDIC press release.
FDIC issues its list of banks examined for compliance with the CRA. The FDIC has issued its list of state nonmember banks that were recently evaluated for compliance with the Community Reinvestment Act. The list covers evaluation ratings that the FDIC assigned to institutions in January 2016. (4/4/2016) FDIC press release.
Rule is finalized that will add certain investment grade general obligation state, local municipal bonds to types of assets big banks might hold to meet liquidity needs through financial stress. The Federal Reserve Board finalized a rule, effective on July 1, 2016, to include certain US general obligation state and municipal securities in the range of assets large banking organizations might use to satisfy regulatory requirements designed to ensure that these banking organizations have the capacity to meet their liquidity needs during a period of financial stress. (4/1/2016) Federal Reserve press release.
Federal Reserve survey offers information on mobile financial services. On March 30th, the Federal Reserve released a survey, Consumers and Mobile Financial Services 2016, which shows how consumers use their mobile phones to interact with financial institutions, make payments, and manage their personal finances. (3/30/2016) Federal Reserve press release.
Federal Reserve participates in attempt to evaluate quicker payments solutions. The Federal Reserve has announced that it has selected McKinsey & Company to support Faster Payments Task Force efforts this year to assess faster payments solution proposals from various providers across the US payments industry. (3/29/2016) Federal Reserve press release.
FinCEN proposes to amend the definition of ‘broker-dealer in securities’ to include funding portals. The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed to amend the Bank Secrecy Act’s (BSA) definition of “Broker or Dealer in Securities” to guarantee that funding portals implement policies and procedures reasonably designed to achieve compliance with the BSA requirements, including the filing of suspicious activity reports, which are currently applicable to brokers or dealers in securities. This proposal does not affect other activities, outside securities, conducted by these businesses. Presently, the BSA regulatory definitions of “broker or dealer in securities” do not include funding portals. The current BSA regulations define “broker-dealers in securities” as being those who are “registered, or required to be registered, as a broker or dealer with the SEC under the 1934 Act.” Comments on this proposed rule will be accepted until June 3, 2016. (4/4/2016) FinCEN press release.
US Judicial Developments
Tenth Circuit revives reverse-piercing theory as available in attempt to enforce SEC disgorgement order. The government sought a declaration that defendants are the alter egos of an individual subject to an SEC disgorgement judgment so it can pursue their assets. The district court ruled that the government’s reverse-piercing alter-ego theory is not available under Utah law. The 10th Circuit reversed and remanded, determining that Utah appellate court opinions suggest that Utah may apply reverse piercing given the facts of the case. The panel rejected the defendants’ argument that the claim is subject to the Fair Debt Collection Procedures Act, holding that it does not apply to disgorgement orders. (3/25/2016) Badger.
Second Circuit vacates US$10 million fines levied on securities fraud defendants. Two money managers were convicted, after a jury trial, of various offenses relating to securities fraud. The district court sentenced both of the defendants to prison, fined each one US$10 million, and imposed forfeiture and restitution against them for over $47 million. The Second Circuit affirmed the judgments but vacated the $10 million fines in the interest of fairness and remanded for reconsideration. The panel found that the record is unclear as to whether the defendants will be able to pay the $10 million criminal fines after satisfying their other criminal and civil repayment obligations. (3/23/2016) Tanaka.
US Exchanges and Self-Regulatory Organizations
FINRA, MSRB urge firms to conduct due diligence in alternative financing transactions involving direct purchases and bank loans. The Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board issued guidance to firms regarding their obligations under certain MSRB and FINRA rules as well as applicable federal securities laws in connection with direct purchases, or the practice of privately placing municipal securities directly with a single purchaser, and the use of bank loans in the municipal securities market. (4/4/2016) FINRA Regulatory Notice 16-10.
SEC, FINRA release agenda for New York Compliance Outreach Program. The SEC and FINRA announced the agenda for its first joint Compliance Outreach Program from Broker-Dealers, which will take place on April 7, 2016, in New York. (3/28/2016) Compliance Outreach Program New York agenda.
MSRB seeks comments on direct purchase and bank loan information disclosure proposal.The MSRB is considering potential rulemaking that would require municipal advisors to disclose information about the bank loans and direct purchases of their municipal entity clients to the MSRB’s Electronic Municipal Market Access website. Comments on the MSRB’s concept proposal are due on or before May 27, 2016. (3/28/2016) MSRB press release.
News from Asia and the Pacific
FSA publishes “Tax Reform in FY 2016.” The Financial Services Agency (FSA) published “Tax Reform in FY 2016 Key FSA-related Items in the Outline for the FY 2016 Tax Reform.” (4/4/2016)
FSA announces establishment of the Global Financial Partnership Center. The FSA announced that it has established the Global Financial Partnership Center (GLOPAC), as a successor organization of the Asian Financial Partnership Center launched in April 2014. The objectives of the GLOPAC are to address issues related to the global financial markets, conduct financial sector technical assistance for infrastructure development, and further strengthen cooperative relationships with financial authorities around the world. (4/1/2016) FSA press release.
SFC announces committee appointments. The Securities and Futures Commission announced new appointments and reappointments to 11 of its committees, effective April 1st. (3/31/2016) SFC press release.
Distinguished economist Steven Joseph Davis appointed MAS Term Professor at NUS Business School. The National University of Singapore and the Monetary Authority of Singapore jointly appointed Professor Steven Joseph Davis, William H. Abbott Professor of International Business and Economics at the University of Chicago Booth School of Business, as the MAS Term Professor in Economics and Finance from April 4-May 3, 2016. (4/4/2016) MAS press release.
New FinTech Office Will Be Set Up. The MAS and the National Research Foundation announced that a FinTech Office will be set up on May 3rd to serve as a one-stop virtual entity for all FinTech matters and to promote Singapore as a FinTech hub. (4/1/2016) MAS press release.
Cross-border Renminbi Flows between Singapore and Chongqing. The MAS welcomed the move by the People’s Bank of China Chongqing Operations Office that will allow eligible corporates and individuals in Chongqing to conduct cross-border Renminbi transactions with financial institutions and corporates in Singapore. (3/25/2016) MAS press release.
ASIC releases market integrity report. The Australian Securities & Investments Commission released its six-monthly report on market integrity focusing on the three areas of deterrence, standards and education, and behavioral change. (4/4/2016) ASIC press release.
ASIC remakes instruments on electronic and dual lodgment of financial reports. ASIC released a revised legislative instrument dealing with dual lodgment and electronic lodgment of directors’ reports, financial reports and auditors’ reports. The instrument, ASIC Corporations (Electronic Lodgment of Financial Reports) Instrument 2016/181, replaces three class orders due to sunset under the Legislation Act 2003 in 2016 and 2017. (4/1/2016) ASIC press release.
ASIC remakes instruments on financial reporting and record keeping by foreign licensees.Following public consultation, ASIC has continued the relief available to foreign companies which are Australian financial services licensees from certain financial reporting and record keeping obligations. ASIC has also continued relief available to foreign licensees which are authorized deposit-taking institutions. The relief is set out in the new legislative instrument, ASIC Corporations (Foreign Licensees and ADIs) Instrument 2016/186. (4/1/2016) ASIC press release.
ASIC facilitates easier electronic disclosure under the ePayments Code. ASIC announced changes to the ePayments Code that will make it easier for businesses to give information to their customers in a digital form. Under the changes, subscribers to the ePayments Code will be able to give information to their customers by making it available electronically and notifying the consumer. This follows similar changes ASIC made last year to the Corporations Act. (3/29/2016) ASIC press release.
ASIC consults on addressing ‘sunsetting’ trustee company common fund class orders. ASIC released a consultation paper proposing to maintain relief previously provided under the Corporations Act 2001 concerning the entities to which client money can be deposited under Section 981B of the Act. The consultation paper also proposes to repeal a class order that ASIC believes is no longer required. Submissions on the consultation paper close on April 27, 2016. (3/24/2016) ASIC press release.
British and Australian financial regulators sign agreement to support innovative businesses.Under a new agreement, innovative financial technology companies in Australia and the UK will have more support from financial regulators as they attempt to enter the others’ market. As a result of the agreement, the UK’s Financial Conduct Authority and ASIC will refer to the other the innovative businesses seeking to enter the others’ market. The regulators will provide support to innovative businesses before, during and after authorization to help reduce regulatory uncertainty and time to market. (3/23/2016) ASIC press release.
ASIC rolls over seven ‘sunsetting’ payments class orders. ASIC created a new legislative instrument to temporarily replace seven class orders relating to non-cash payment facilities that were due to expire between April 1, 2016 and April 1, 2017. (3/23/2016) ASIC press release.
ASIC consults on remaking ASIC class orders on financial services disclosure. ASIC released aconsultation paper, proposing to remake four class orders that are due to expire in 2017. (3/23/2016) ASIC press release.
News from Europe
FCA releases 2016/17 Business Plan. The UK Financial Conduct Authority published its Business Plan for 2016/17, which sets out the priorities for the agency’s core activities and flexible resources during the year. The Business Plan identifies several key tasks for the FCA, including the launch of a market study on retirement outcomes, the implementation of the Financial Advice Market Review recommendations, the development of a policy to extend the Senior Managers and Certification Regime to all Financial Services and Markets Act firms, the supervision of major UK FICC benchmarks, and the launch of the “Regulatory Sandbox.” (4/5/2016) FCA press release.
FCA consultation on proposed 2016/17 fees and levies rates. The FCA requested comments on its proposed fees and levies rates for the FCA periodic fees, consumer credit fees, ring-fencing implementation fee, pensions guidance levies, and the Financial Ombudsman Service and Money Advice Service levies for 2016/17. Comments are due on or before May 27, 2016. (4/5/2016) FCA press release.
ESMA amends EMIR RTS to propose one-day margin period of risk for CCP client accounts. The European Securities and Markets Authority issued amended regulatory technical standards under the European Market Infrastructure Regulation. The amended RTS reduces the margin period of risk for EU-based central counterparties from two days to one day in an effort to level the playing field between European and US CCPs. (4/5/2016) ESMA press release.
ESMA amends RTS on access, aggregation and comparison of trade repository data. ESMA published amended RTS that address access, aggregation and comparison of data across trade repositories under EMIR. Among other things, the amended RTS proposes a standardized output format of trade repository data; standardized and secure data exchange; standardized frequencies to provide direct and immediate access to trade repository data; and the use of secure machine-to-machine connection and data encryption protocols. (4/5/2016) ESMA press release.
ESMA Q&A on UCITS. ESMA updated its questions and answers on the Undertakings for the Collective Investment in Transferable Securities Directive to include additional information regarding UCITS investment in UCITS feeder funds. (4/5/2016) ESMA press release.
ESMA Q&A on AIFMD. ESMA published an updated version of its questions and answers document on the Alternative Investment Fund Managers Directive to include new information on notification requirements relating to additional investment in existing Alternative Investment Funds. (4/5/2016)ESMA press release.
FCA proposes approach to the interaction between its capital planning buffer and the CRD IV buffers. The FCA published its proposed approach to the interaction between the FCA’s capital planning buffer and the combined buffer under the Capital Requirement Directive IV, which includes the countercyclical buffer rate set by the Bank of England’s Financial Policy Committee among other components. The FCA indicated that a firm can offset the amount of the FCA’s capital planning buffer by the amount of the combined buffer so that the firm holds the higher of the capital planning buffer or the combined buffer. Comments on the proposal are due on or before April 29, 2016. (4/4/2016) FCA press release.
PRA consults on changes to supervision of building societies’ treasury and lending activities.The Prudential Regulation Authority requested comments on a consultation paper that proposes changes to its supervisory statement on the PRA’s approach to the supervision of building societies’ treasury and lending activities. Comments are due on or before July 4, 2016. (4/4/2016) PRA press release.
ESMA revises Q&A on EMIR. ESMA published an updated version of its questions and answers regarding the implementation of EMIR. The updated Q&A includes new information regarding how to interpret and populate the “clearing obligation” field in trade reports. (4/4/2016) ESMA press release.
ESMA sees no need for temporary exclusion of ETDs from open access to trading venues and CCPs. ESMA released its final report on the need to temporarily exclude exchange-traded derivatives from non-discriminatory access to CCPs and trading venues under the Markets in Financial Instruments Directive and Regulation. ESMA concluded that potential risks to open access have been addressed by the legislative frameworks of MiFID II, MiFIR and EMIR and that a 30-month phase-in period for exchange-traded derivatives is unnecessary. (4/4/2016) ESMA press release.
ESMA releases revised Q&A on the Market Abuse Directive. ESMA updated its questions and answers regarding the Market Abuse Directive, adding new guidance on whether materials for public distribution indicating that certain financial instruments are “undervalued,” “fairly valued” or “overvalued” would be considered a “recommendation” as defined under the Directive. (4/1/2016)ESMA press release.
Capital Markets Union changes to Solvency II for infrastructure investments now in effect.The European Commission’s amendment to Solvency II to encourage insurance companies to invest in infrastructure under the Capital Markets Union Action Plan became effective on April 2, 2016. The amendment lowers the risk charges for insurer’s equity and debt investments in qualifying infrastructure projects. (4/1/2016) EC press release.
PRA policy and supervisory statements on board responsibilities. The PRA published a policy statement that responds to feedback regarding its consultation on corporate governance and board responsibilities. The PRA also released a supervisory statement that identifies the aspects of corporate governance that the PRA may emphasize in the course of its supervision of regulated firms and reiterates the PRA’s expectations that the boards and management of regulated firms will operate the business in a prudent manner, consistent with the firm’s own safety and soundness and the continuing stability of the financial system. (3/31/2016) PRA press release.
ESMA finalizes UCITS remuneration guidelines. ESMA published the final guidelines on sound remuneration policies under the UCITS Directive and the AIFMD. The guidelines, which clarify the requirements under the UCITS Directive for management companies when developing and implementing a remuneration policy for key staff, will apply to UCITS management companies and national competent authorities beginning on January 1, 2017. (3/31/2016) ESMA press release.
PRA initiates discussion of equity release mortgages. The PRA issued a discussion paper that seeks comments on the valuation, capital treatment, and risk management of equity release mortgages as well as good practices for managing risks associated with investing in these assets. Comments are due on or before May 27, 2016. (3/31/2016) PRA press release.
British regulators finalize changes to the Complaints Scheme. The FCA released a policy statement containing the final amendments to the Complaints Scheme, which investigates complaints against the FCA and the PRA. The amendments implement more detailed requirements for the annual report prepared by the Complaints Commissioner regarding investigations under the Scheme. (3/31/2016) FCA press release. The PRA published its own policy statement alongside the FCA’s document. (3/31/2016)
Peer-to-peer platforms must await FCA authorization before offering Innovative Finance ISA investments. The FCA released a statement regarding the status of applications for peer-to-peer platforms for authorization to offer investments for the Innovative Finance Individual Savings Account, which launched on April 6, 2016. The statement notes that while 86 firms are still awaiting a decision on their applications and 44 firms have interim permission, only fully authorized firms will be eligible to participate in the Innovative Finance ISA. (3/31/2016) FCA statement.
FCA offers its views on the European retail financial services market. The FCA published its response to the European Commission’s Green Paper on Retail Financial Services, which seeks input on improving choice, transparency and competition for consumers in the European retail financial services market. The FCA’s response identifies the overarching issues the regulator believes require additional research and understanding to facilitate greater cross-border trade in retail financial services. (3/31/2016) FCA press release.
FCA finalizes guidance on voluntary redress schemes. The FCA published finalized guidance on voluntary redress schemes under the Competition Act 1998. The guidance addresses the FCA’s approach to applications for approval of redress schemes, the approval process for redress schemes, and the criteria the FCA will use to determine whether to enforce approved redress schemes. (3/30/2016) FCA press release.
FCA publishes data regarding complaints against financial services firms. The FCA released data regarding the number of complaints against financial services firms between July and December 2015, which indicated that the overall number of complaints decreased by 1.4 percent compared to the previous six-month period. Payment protection insurance received the most complaints; complaints about the product increased by six percent. (3/30/2016) FCA press release.
PRA statement on the interaction between the PRA buffer and the CRD IV combined buffer.The PRA clarified its approach to adjustments to firms’ PRA buffers in light of the Financial Policy Committee’s announcement that it will increase the countercyclical buffer rate to 0.5 percent, indicating that in cases where PRA buffers already reflect risks captured by the 0.5 percent UK countercyclical buffer rate, the PRA will implement buffer reductions to offset the UK countercyclical buffer rate as it comes into effect. The PRA will continue to assess its supervisory buffers to ensure there is no duplication in capital buffers to cover the same risks. (3/30/2016) PRA statement.
ESMA consults on guidelines for list of information on commodity and spot markets under MAR. ESMA requested comments on draft guidelines under the Market Abuse Regulation that would establish a required list of information regarding commodity derivatives markets or spot markets to assist in determining inside information regarding commodity derivatives and triggering the prohibitions for insider dealing. Comments are due on or before May 20, 2016. (3/30/2016)ESMA press release.
EBA report studies remuneration practices and the effect of the bonus cap. The European Banking Authority released a report that examines remuneration practices at EU banks, including the application of deferral arrangements, the pay-out in instruments and the impact of the bonus cap on institutions’ financial stability and cost flexibility. The report found that the number of high earners in the EU increased significantly, the introduction of the bonus cap resulted in a drop in the average ratio between the variable and fixed salary paid to high earners and all other identified staff, and the bonus cap did not appear to significantly affect institutions’ financial stability and cost flexibility. (3/30/2016) EBA press release.
FCA seeks comments on proposed changes to Knowledge Base. The FCA published Primary Market Bulletin No. 13, which contains information for primary market participants regarding finalized and proposed changes to the Knowledge Base. The Bulletin contains the finalized guidanceand feedback it received to the changes the FCA proposed to the Knowledge Base in its November 2015 consultation. The Bulletin also contains a guidance consultation on additional proposed changes to the Knowledge Base, including amendments to six procedural notes, the addition of five new technical notes, amendments to three existing technical notes, and the re-consultation on a previously proposed technical note. Comments are due on or before May 10, 2016. (3/29/2016) FCA press release.
BOE’s Financial Policy Committee policy meeting statement. The BOE’s Financial Policy Committee released a statement from its March 23, 2016, policy meeting. The statement provides an overview of the Committee’s discussion of global and market risks, domestic risks, banking system resiliency, and market liquidity and resilience of market-based finance. The Committee concluded that the outlook for financial stability in the UK has deteriorated since its November 2015 meeting; as a result, the Committee decided to increase the UK countercyclical buffer rate to 0.5 percent of risk-weighted assets. (3/29/2016) BOE press release.
ESMA publishes 2015 EU accounting enforcement report. ESMA released its annual report on the enforcement and regulatory activities of accounting enforcers, which provides an overview of ESMA’s and European Economic Area accounting enforcers’ activities in examining issuers’ compliance with the financial reporting framework, quantitative information on enforcement activities, and ESMA’s activities for 2016 in the area of corporate reporting. (3/29/2016) ESMA press release.
FCA issues near-final rules on disclosure requirements for non-ring-fenced bodies. The FCA published a policy statement containing the near-final rules regarding the required disclosures that non-ring-fenced bodies, including deposit-takers that are exempt from ring-fencing, must make to consumers. The FCA indicated that the final rules will become effective later this year. (3/24/2016)FCA press release.
PRA consults on proposals for the implementation of MiFID II. The PRA requested comments on a consultation paper that proposes rules regarding the implementation of MiFID II, including proposals for the extension of scope and harmonization of the passporting regime as well as systems and controls for firms that undertake algorithmic trading and provide direct electronic access to trading venues. Comments are due on or before May 27, 2016. (3/24/2016) PRA press release.
PRA seeks comments on proposals for 2016-17 fees and levies. The PRA published a consultation paper that proposes changes to the PRA’s fees and levies for 2016-2017, including revised fee rates to meet the PRA’s Annual Funding Requirement; a new ring-fencing implementation fee; a proposal for how the PRA will distribute a refund from last year’s AFR and retained penalties; and an amendment to the fee rules resulting from recent policy changes for credit unions. Comments are due on or before May 24, 2016. (3/24/2016) PRA press release.
EBA launches decentralized consultation on FINREP and GAAP. The EBA initiated a public consultation through National Competent Authorities across the EU regarding proposals for updated templates for reporting financial information using Generally Accepted Accounting Practices. Comments are due on or before April 15, 2016. (3/23/2016) EBA press release.
EBA draft Guidelines on corrections to modified duration for debt instruments. The EBA requested comments on draft Guidelines that propose two approaches to correct the modified duration calculation of general risk for debt instruments to appropriately reflect the effect of the prepayment risk. Comments are due on or before June 22, 2016. (3/22/2016) EBA press release.
ISDA revises licensing program for SIMM. The International Swaps and Derivatives Association announced revisions to the licensing program for its Standard Initial Margin Model for non-cleared derivatives that will allow any market participant to license ISDA SIMM to calculate initial margin for its own or its clients’ non-cleared derivatives transactions, subject to an annual licensing fee. (4/5/2016) ISDA press release.
IOSCO updates information repository for central clearing requirements for OTC derivatives.The International Organization of Securities Commissions updated its information repository for central clearing requirements for OTC derivatives in different jurisdictions. (4/1/2016) IOSCO press release.
Basel Committee report analyzes variability of risk-weighted assets. The Basel Committee on Banking Supervision published its second report on risk-weighted assets in the banking book, which examines the variability of risk-weighted assets in banks that use internal models to calculate their credit risk regulatory capital requirements in an effort to ensure effective implementation of the Basel III framework. The report found greater variation between parameters estimated using credit risk models and actual outcomes at the individual bank level as well as wide variation in bank practices in estimating exposure at default for all asset classes. (4/1/2016) BIS press release.
ISDA concludes Determinations Committees selection process and announces outcome. ISDA announced the firms recently selected to serve on the five regional Determinations Committees. The firms will serve on the DCs effective April 29, 2016. (4/1/2016) ISDA press release.
FSB discusses 2016 priorities at Tokyo meeting. The Financial Stability Board met in Tokyo on March 30-31, 2016, to discuss its approach to its 2016 priorities, which include implementing post-crisis reforms, addressing new and emerging vulnerabilities in the financial system, and promoting robust financial infrastructure. The FSB agreed to undertake a public consultation later this year regarding policy recommendations to address structural vulnerabilities from asset management activities. (3/31/2016) FSB press release.
ISDA OTC Derivatives Compliance Calendar. ISDA issued an updated OTC Derivatives Compliance Calendar. (3/31/2016)
Basel Committee consults on changes to internal ratings-based approaches to address excessive variability in credit risk-weighted assets. The Basel Committee published a consultative document that proposes changes to the advanced internal ratings-based approach and the foundation internal ratings-based approach under the Basel framework. The proposed changes would remove the option to use the internal ratings-based approaches for certain exposure categories, including loans to financial institutions; adopt exposure-level, model parameter floors; and provide greater specification of parameter estimation practices. Comments are due on or before June 24, 2016. (3/24/2016) BIS press release.